NZ Emissions Trading Scheme

Introduction

The New Zealand Emissions Trading Scheme (NZ ETS) was legislated through the Climate Change Response Act (2002) in September 2008 and remains in force. To date only the forestry sector is directly affected by the NZ ETS.

The Government had announced substantive amendments to the NZ ETS and these were passed into law in December 2009.

Background

Major Changes to NZ ETS Announced - Amending Legislation Introduced

Announcement of Changes:

On the 14^th of September 2009, the Government, with Maori Party support, announced it would revise the Emissions Trading Scheme to reduce the costs to households and the impact on jobs while ensuring New Zealand takes a responsible approach to the global problem of greenhouse gas emissions and climate change.

• Government Press Release
• Summary of NZ ETS Changes [PDF 21 Kb]
• ETS Questions and Answers [PDF 34 kb]

Amendment Bill Introduced:

The Climate Change Response (Moderated Emissions Trading) Amendment Bill was introduced on the 24^th of  September:

• Government Press Release
• Minister's Speech on First Reading of Amendment Bill
• Climate Change Response (Moderated Emissions Trading) Amendment Bill
• Climate Change Response Act 2002 No 40 (as at 1 July 2009) to be amended

The Bill passed its first reading and has been referred to the Finance and Expenditure Select Committee. The committee is tasked with reporting back on or before 16^th November 2009.

This schedule is in line with the Governments stated desire to have the legislation passed on or before 26^th November 2009, the last sitting day of parliament prior to the Copenhagen UN climate change conference in December.  

Key Changes Announced

Which Sectors and When ? (unit surrender obligation start dates)

Transitional Measures

Key Design features

Key Design features

Below are listed just a few of the NZ ETS design parameters.

 For a more detailed explanation please contact us.  

Which Sectors and When?

Sectors will be phased in over time:

• 1-Jan-2008 Forestry
• 1-Jul-2010 Stationary energy and Industrial processes
• 1-Jul-2010 Liquid fossil fuels and transport
• 1-Jan-2013 Waste and all remaining sectors
• 1-Jan-2015 Agriculture

Which Gases?

• All six Kyoto Protocol Greenhouse gases
  • CO₂, CH₄, N₂O, PFCs, HFCs, SF₆

Where is the Point of Obligation?

The point of obligation determines who in each sector has unit obligations and within brackets below are the anticipated number of participants with trading obligations in each sector:

• Forestry - landowners (or forestry rights holders)
  • pre-1990 forest  if deforested [potentially > 1,000]
  • Post 1989 credits and obligations [2,000-9,000]
• Liquid fossil fuels and transport - fuel suppliers [5]
  • domestic aviation may opt in and take on obligations
• Stationary energy - coal, gas, geothermal suppliers [45]
  • large users may opt in and take on obligations
• Industrial processes - end emitters [35+]
• Agriculture
  • nitrogen fertilisers - suppliers [10]
  • meat/dairy - processors [25]
• Waste - landfill operators [60]

What is the Unit of Trade?

The unit of trade will be an NZ Unit (NZU). Each NZU represents one tonne of CO₂ equivalent emissions.

International Linking

NZUs will be "backed up" by a Kyoto unit to enable linking with international Kyoto Protocol flexibility mechanisms. These can be used to meet trading obligations:

• Clean Development Mechanism (CERs)
• Joint Implementation (ERUs)
• Emissions Trading (AAUs) may be allowed but are likely to be restricted to:
  • Greened AAUs;
  • Imported AAUs originating from a country with a domestic ETS linked to the NZ ETS
  • Imported AAUs from county where AAUs represent emission reductions
• Forestry lCERs and tCERs are disallowed.

This means that the price of an NZU on the NZ ETS will reflect the international price of carbon emissions.

How are Emission Units (NZUs) Allocated to Firms?

The Government will not provide assistance (free allocation) to firms whose profits will be significantly unaffected by the NZ ETS.  For others assistance will be provided through gifting of NZUs, however:

• No free allocation will be provided to the upstream points of obligation in the liquid fossil fuel and stationary energy sectors (including electricity generators) and landfill operators.
• The pool of units for eligible industrial producers and agriculture will be uncapped.
• Indirect emissions associated with the consumption of electricity, as well as direct emissions from stationary energy and direct emissions from non-energy industrial processes will be included in the concept of emissions from industrial producers.
• the free allocation will decrease on a linear basis by 1.3% per annum.
• In the forestry sector, free allocation will be provided such that the Crown assumes a total liability (taking the cost of the provision of the de minimus thresholds into account) for deforestation emissions as follows:
  • from 2008 to 2012, 21 Mt CO₂-e for plantation forest, plus a relatively small allocation set aside for forest weed control (eg, wilding pine)
  • from 2013, an additional 34 Mt CO₂-e for plantation forest.
• Firms that cease trading will not retain any free allocation.

What is the Trading Period?

• The trading period is a calendar year noting the mid year start for energy sector in 2010.
• At the end of the trading period the emitter must relinquish enough allowances to cover the past year's emissions liability (or pay fixed price in transition years).

Policy Advice

NZCX's role is as a broker and so we do not provide policy advice.

For help in this areas, please contact our affiliates:

• Policy advice:  www.frazerlindstrom.com
• Legal Advice:  www.chancerygreen.com

Forward Trades

If you want to purchase international CERs to meet an expected obligation or if you want to forward sell NZ AAUs or NZUs then contact us now.